Double changes in FBM KLCI?

• Felda Global Ventures and Astro could join the FBM join the FBM KLCI a KLCI as new component stocks component stocks component stocks • The likely omissions are omissions are omissions are AirAsia and and MMHE following following their market cap declines their market cap declines • This will raise slightly the aggregate free raise slightly the aggregate free raise slightly the aggregate free float adjusted market cap, which in turn may erode adjusted market cap, which in turn may erode the the relative weight relative weights of existing constituents existing constituents existing constituents

Probable inclusions. The FTSE Bursa Malaysia KLCI or FBM KLCI list could see two new members after the year-end semi-annual periodic review (scheduled for 13 Dec).This benchmark index comprises the 30 biggest Malaysian listed companies ranked by full market cap, which must also meet the free-float and liquidity requirements. Using 30 Nov as the reference date, our simulation exercise shows that Felda Global Ventures (in 22nd position with a market cap of RM16.6b) and Astro (24thposition; RM14.9b market cap) could join as new constituents,with any changes to take effect after market close on 21Dec.

Who will be dropped dropped dropped? They will likely replace AirAsia (36th position; RM7.9b market cap) and MMHE (39 thposition; RM7.1b market cap) as both counters were relegated in the list following their share price slumps. Separately, three stocks – MISC (22nd largest; RM17.9b market cap), SapuraKencana (27th largest; RM14.2b market cap) and Nestle (28th largest; RM14.0b market cap) – failed to gain entry despite being ranked in the top 30 list because they did not pass the liquidity test or did not meet thebuffer ruling (refer to Fig 1 for the ground rules).

Portfolio re-jigging. The probable changes in the FBM KLCI line-up are expected to result in a slight increase in its aggregate free-float adjusted market cap – by RM3.0b to RM522.3b based on 30 Nov close. This, in turn, would trim the relative weights of existing constituents,with potential new entrants Felda Global Ventures and Astro garnering relative weights of 1.28% and 0.83%, respectively (assuming a free float factor of 30% each) (Fig 3). Consequently, index-tracking portfolio managers may tweak their portfolios mix should the changes occur. Our current recommendations for these stocks are Felda Global Ventures (HOLD; TP RM4.30), AirAsia (HOLD; TP RM2.90) and MMHE (FULLY VALUED; TP RM4.10) while Astro is presently not under our coverage.